Mosaic Chart Alerts

Volatility is creating new trade opportunities. Patterns complete in CCRN, DINO, and CCL. Adding LW, PCTY, LYTS, and NCLH to the watchlist.

Oct 05, 2022

Welcome back to Mosaic Chart Alerts!

In this newsletter, I’ll focus on the best setups that I’m monitoring for both long and short positions. With a chart and short write-up, this is a quick way to scan and plan potential trade ideas.

And to select these ideas, a lot of work goes on behind the scenes to find stocks offering the right combination of fundamental attributes along with a proper chart setup.

These are my notes from a shortlist of setups I’m monitoring.

Weekly Recap

With a decline of 9.3%, the S&P 500 saw its worst September since the 2008 financial crisis and brought the year-to-date decline to nearly 25%. So just when things looked particularly bleak, the index delivered its best two-day gain in over two years to kickoff October!

If we needed any reminder of the type of volatility that punctuates bear markets, it’s that kind of price action. Any number of variables are used to describe the latest move in the stock market, including expectations of a Fed pivot (or not), economic data to reinforce such a pivot (or not), and other variables like the strength in the dollar or level of Treasury yields. Regardless of the latest explanation, the key to navigating bear markets is to stay disciplined and follow the price action of your setups.

With the ups and downs over the past week, we’ve seen our setups work among both long and short positions. Our short setup in CCL broke down hard from its bear flag pattern, so I’m removing that position from the watchlist. Long setups in DINO and CCRN are following through to the upside, so those positions also come off (as a reminder, see Rules of the Game below on how I manage open trades). I’m also taking ERII off the long list, as price weakness invalidates the pattern. Finally, there several new opportunities among both the long and short setups being added this week.

Long Trade Setups

Pattern since start of 2021 has a deeper than ideal structure, but the more shallow consolidation since testing the $85 breakout level in August is a nice sign of relative strength.

PCTY

Software stock that has help up well recently. Also has a deep base, but price action since August (while filling that gap) has reset the MACD while holding above the 50-day moving average. Using $270 as my breakout level.

LYTS

Higher risk small-cap stock, but showing nice growth rate in sales and earnings. Most recent pullback also respecting the 50-day moving average. Watching for a breakout over the $8.50 to $9.00 area.

IRDM

Starting to breakout from the consolidation pattern that’s formed since start of 2021. Recent price action has occurred in a tight range while respecting the 50-day moving average. The $47 level is initial resistance, followed by the prior high near $55.

BOWL

Keeping this stock on the watchlist for another week. Recent IPO that saw an initial breakout over the $13 level, but price has fallen back inside the pattern. Still respecting the 50-day moving average, and keeping $14 as the trigger.

Volatile coal stock that could be setting up another breakout. The $55 level is initial resistance followed by the 52-week highs at $60. Position size accordingly with this name.

Short Trade Setups

NCLH

Let’s see if NCLH can follow the price action in CCL. The $11 level has been tested several times since June, making it my trigger for a short trade.

FVRR

Found support around the $29 level in May and has tested that level several times since then, which has allowed the weekly MACD to recharge for another move lower. Still expecting a breakdown from that level given how often it has been tested.

Rules of the Game

If you haven’t noticed yet, I trade breakouts! I trade based on the daily chart for long positions. And for price triggers on long setups, I tend to wait until the last half hour of trading to add a position. I find that emotional money trades the open, and smart money trades the close. If it looks like a stock is breaking out, I don’t want a “head fake” in the morning followed by a pullback later in the day.
Also for long positions, I use the 21-day exponential moving average (EMA) as a stop. If in the last half hour of trading it looks like a position will close under the 21-day EMA, I’m usually selling whether it’s to take a loss or book a profit.
For short (or put) positions, I trade off a four-hour chart instead of a daily. Why? There’s a saying that stocks go up on an escalator and down on an elevator. Once a profitable trade starts to become oversold on the four-hour MACD, I start to take gains. Nothing like a short-covering rally to see your gains evaporate quickly, so I’m more proactive taking profits on short positions. I also use a 21-period EMA on the four-hour chart as a stop. If there is a close above the 21-period EMA, I will cover my short.

For updated charts, market analysis, and other trade ideas, give me a follow on twitter: @mosaicassetco

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